Correlation Between Universal Microelectronics and Information Technology

Can any of the company-specific risk be diversified away by investing in both Universal Microelectronics and Information Technology at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Universal Microelectronics and Information Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Universal Microelectronics Co and Information Technology Total, you can compare the effects of market volatilities on Universal Microelectronics and Information Technology and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Universal Microelectronics with a short position of Information Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Microelectronics and Information Technology.

Diversification Opportunities for Universal Microelectronics and Information Technology

0.8

Correlation Coefficient

Universal Microelectronics  Information Technology

Very poor diversification

The 3 months correlation between Universal and Information is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Universal Microelectronics Co and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology and Universal Microelectronics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Universal Microelectronics Co are associated (or correlated) with Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of Universal Microelectronics i.e., Universal Microelectronics and Information Technology go up and down completely randomly.

Pair Corralation between Universal Microelectronics and Information Technology

Assuming the 90 days trading horizon Universal Microelectronics Co is expected to generate 1.67 times more return on investment than Information Technology. However, Universal Microelectronics is 1.67 times more volatile than Information Technology Total. It trades about 0.11 of its potential returns per unit of risk. Information Technology Total is currently generating about 0.01 per unit of risk. If you would invest  2,145  in Universal Microelectronics Co on September 3, 2024 and sell it today you would earn a total of  495.00  from holding Universal Microelectronics Co or generate 23.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Universal Microelectronics Co  vs.  Information Technology Total

Universal Microelectronics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Microelectronics Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Universal Microelectronics showed solid returns over the last few months and may actually be approaching a breakup point.

Information Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Information Technology Total has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Information Technology is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Universal Microelectronics and Information Technology

The main advantage of trading using opposite Universal Microelectronics and Information Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Microelectronics position performs unexpectedly, Information Technology can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Information Technology will offset losses from the drop in Information Technology's long position.

The idea behind Universal Microelectronics Co and Information Technology Total pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Volatility Analysis module to get historical volatility and risk analysis based on latest market data.